UAE cbank sees no scare in US debt row

Abu Dhabi, July 28, 2011

The United Arab Emirates' central bank said on Thursday it was confident there will be a compromise to avert a US debt default by an Aug. 2 deadline, adding that it holds no US Treasury bonds or US financial instruments.

Public comment on the US crisis has been scarce from Gulf central banks and sovereign wealth funds, some of whom are major holders of US Treasuries and other dollar assets.

Any sign of concern that would lead to institutions in the region dumping those assets to protect themselves would be likely to alarm financial markets more broadly.

'We believe that the debate on the US public debt ceiling issue will end with a compromise solution before the deadline date,' the UAE central bank said in a statement.

'We do not believe that it is necessary to imagine that the US government may default on its debts given its enormous potential, and we had seen in the past under President Clinton, the US economy's ability to reduce its public debt.”

A bill to cut the US deficit faced a close vote in Congress on Thursday.

The UAE central bank reiterated its support for its currency peg to the US dollar. It said a majority of its foreign reserves, denominated in US dollars, were invested in non-US assets.

'Central Bank of the UAE currently possesses no US treasury bonds or any other financial instruments issued by the US government due to the very low return on holding these instruments,' it said.

The UAE central bank held Dh199.1 billion ($54.2 billion) in total foreign currency assets at the end of June, of which 56.5 per cent in the form of deposits, 25.7 per cent in held-to-maturity foreign securities, and 222.2 per cent in other foreign assets.

'The central bank of the UAE's foreign reserves are around $56 billion dollars. Out of that $10 billion is Dubai government bonds...,' said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

'With the small portfolio, they are able to ignore the US treasury market because it is not as large. If it was larger the central bank would have no choice but to invest as well. It makes perfect they say that it is a very low return, which is true, “ Gokkent added. – Reuters